We test for the populist view of state capture in Latin America be- tween 1970 and 2003. The empirical results-based on the relatively novel panel time-series data and analysis - confirm the prediction that recently-elected governments coming into power after periods of po- litical dictatorship, and which are faced with high economic inequal- ity and demand for redistribution, end up pursuing unfunded populist [re] distributive policies. These policies, in turn, lead to bursts of hyper- in?ation and therefore macroeconomic instability in the region. All in all, we suggest that the implementation of democracy as such requires not only the 'right political context'- or a constrained executive-to work well, but it also must come with certain economic institutions, (e.g. central bank independence and a credible and responsible fiscal authority), institutions which would raise the costs of pursuing populist policies in the first place.
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Paper provided by University of Pretoria, Department of Economics in its series Working Papers with number
200921.
Find related papers by JEL classification: E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes N16 - Economic History - - Macroeconomics and Monetary Economics; Growth and Fluctuations - - - Latin America; Caribbean O23 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development O54 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean
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